Why don’t Americans save?

A new report from the Center for Financial Services Innovation says that only 28% of Americans are financially healthy. And it reinforces something we already knew: The U.S. saving rate sucks. Americans don't save.

Financially healthy people (28% of the U.S., 70 million people) are “spending saving, borrowing, and planning in a way that will allow them to be resilient and pursue opportunities over time.”

Financially coping people (55%, 138 million) are “struggling with some, but not necessarily all, aspects of their financial lives.”

Financially vulnerable people (17%, 42 million) are “struggling with all, or nearly all, aspects of their financial lives.”

The full report is huge — it's an 80-page PDF! — and filled with data based on survey responses from 5000 people. The document does a great job of presenting the info, separating it into four major sections (spend, save, borrow, plan), then comparing how people in each financial health tier differ in their approaches.

Here, for instance, are the results for the survey question about saving rate:

In the nearly thirteen years I've been writing Get Rich Slowly, I've seen reports like this over and over and over again. It's a constant refrain: American's don't save. But why don't they save?

The U.S. Saving Rate

There's a tendency in some circles to blame outside forces for our national inability to save. “People can't save because the economy sucks. Incomes are low and expenses are high.”

I'm not going to say that stagnating wages don't play a part in the problem, but I dont think they're a primary factor. In fact, if you look at a chart of the U.S. saving rate over time, you can see a surprising pattern. (This data comes from the Federal Reserve and the U.S. Bureau of Economic Analysis.)

See those grey shaded areas in the chart above? Those are recessions. When the economy is bad, people tend to save more. When the economy is booming — the mid 1980s, the late 1990s, the mid 2000s, now — people save less. This takes the teeth out of the whole “people can't save because of the economy” argument.

I think the problem with the American saving rate is complex. There are many forces working together to depress saving rates in this country.

Why Don't Americans Save?

Many writers and pundits have tried to tackle this topic over the past twenty years. I feel like most of the analysis is facile and/or guided by a political agenda. Deep thought on the subject — such as this fine article from The Atlantic — is rare.

In that Atlantic article from 2016, author Derek Thompson explores five different theories, examining the pros and cons of each. Thompson says these five factors are each a piece of the problem:

The poor and middle class went into debt to buy houses. There is a clear correlation between increased homeownership and decreased saving.

U.S. policies make it easy to not save money. It's too easy to access our retirement accounts, pulling out money we oughtn't pull out.

The U.S. is uniquely susceptible to conspicuous consumption. This is a subject I've been discussing with folks by email lately. Look for future articles about “identity economics”.

The pressure to keep up with richer neighbors has been greatly exacerbated by rising income inequality.

Thompson doesn't believe any single factor is wholly to blame. He thinks it's a combination of these things. (He and I also agree that anyone at any income level is capable of saving. He writes: “The poor can save more money, and it’s not offensive to suggest so.” Preach!)

In addition to Thompson's five factors, I'd propose three other possible reasons Americans don't save.

We're not encouraged to save. There's a vast, sophisticated advertising industry designed to separate people from their money. Nobody believes ads work on them, yet they're working on somebody! Otherwise companies wouldn't pump hundreds of billions into advertising each year. (Trust me: Ads affect you.) But there are precious few ads encouraging us to spend less and save more.

We're not clear on what we want to use our money for. Here at Get Rich Slowly, I'm adamant that readers need to find their purpose in life. You need some vague idea of where you're headed, at the very least. Without a vision of the future, you can't make smart choices about your money in the present. Spending on one thing is as good as spending on another. With a destination in mind, it's easy to know when your spending undermines your long-term goals.

We're taught that money is complicated. It's not. The basic math of money is shockingly simple. It's the psychology and behavior that's difficult to master. There's another vast industry of financial advisors with a vested interest in convincing you that this stuff is difficult and that you must have help. More people need to know that yes, they can manage their own money effectively.

Looking back at that chart of how the U.S. saving rate has changed over time, I also wonder if some of the patterns can be attributed to the forever fallacy. When times are bad, we believe they'll always be bad, so we save more. When times are good, we tend to believe they'll always be good, so we spend more.

Solving the Problem

It's one thing to point out that there's a problem — a problem we're all aware of — but it's something else entirely to provide solutions.

In his Atlantic article, Thompson advocates government-level changes: banning lotteries, expanding Social Security, limiting withdrawals from retirement accounts. Perhaps these measures would be effective, but I'm not a fan of looking for societal solutions to personal problems. (Remember: I believe that becoming proactive is the number-one secret to wealth, freedom, and happiness.)

Other folks I admire are proponents of greater financial education. They want personal finance classes in high schools and/or increased financial literacy education for adults. The Plutus Foundation, for instance, is working hard to increase financial literacy by funding a variety of community-based programs.

From my experience, the trouble is that financial literacy fails more often than not. Most programs are targeted at teaching math and mechanics; they ignore behavior. It's not the math and mechanics that are the issue! Until we turn our attention from traditional financial literacy to something else — behavioral literacy? — these programs will remain ineffective.

So, what's the solution? I wish I had one.

Personally, my answer is to continue providing solid money advice for those actively hunting for help. My goal is to make Get Rich Slowly a treasure trove of information for those who stumble upon it. (Testimonials from readers like you seem to indicate I'm meeting my aim!)

Lately, the GRS team and I have been talking a lot about who this site is for. Conventional wisdom is that in order to be successful, a site has to be laser-focused on a specific audience. Get Rich Slowly is not laser-focused…and I don't want it to be. I want this to be a place for everyone to get help with money.

Yesterday, as I was massaging some old Money Boss material into the archives here at GRS, it occurred to me that perhaps I do have an answer to these two problems: Why don't Americans save? What audience is GRS for?

At Money Boss, my goal was to get people to manage their household finances as if they were managing a small business. Everybody understands that a business needs to earn a profit in order to survive and thrive, but few realize the same applies their personal lives. “Profit” for a business is the same as “savings” for an individual.

What if I took this metaphor, a metaphor that I thought I was going to retire, and used it to provide editorial direction at Get Rich Slowly? What if I tried to promote this as widely as possible, to in some small way encourage Americans to save more?

That's exactly what I intend to do. My mission in life is to help as many people as possible learn to manage their money so they can earn a “personal profit”. I want them to use this profit to fund whatever theirpersonal mission happens to be.

I can't change the habits of an entire country. But, one person at a time, I can help a handful of people learn to save.

In 2006, J.D. founded Get Rich Slowly to document his quest to get out of debt. Over time, he learned how to save and how to invest. Today, he's managed to reach early retirement! He wants to help you master your money — and your life. No scams. No gimmicks. Just smart money advice to help you reach your goals.

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There are 60 reader responses to "Why don’t Americans save?".

Dave @ Accidental FIREsays

I’m not going to say that stagnating wages don’t play a part in the problem, but I don’t think they’re a primary factor

I did a post not too long ago about the stagnant wage issue. Bottom line, it’s complicated. Median incomes have actually outpaced inflation in data that I analyzed from 1984 in all but one state. People didn’t like hearing that. My reaction is they an have their own opinions but they’re not entitled to their own numbers, and the numbers are what the numbers are :)

Of course the other side is that even though median incomes have beat inflation since 1984, things like college costs, healthcare costs, and in some cases housing have skyrocketed. So one could argue that we may have beaten inflation overall, but certain aspects of our budget are killing us.

My personal opinion as to why Americans don’t save is it’s more the “keep up with the Joneses” factor than anything. Many people think it’s a cliche and not really a factor. Peer pressure is a hugely powerful thing, and social media inundating us with everyone’s amazing life on a constant basis has only exacerbated it.

I think the college cost issue is an interesting one. So much of the student loan market is driven by expensive private schools and the crisis is people who take out huge loans without job prospects to pay them back. College IS significantly more expensive, but individuals making college choices without cost considerations is a huge driver. People just didn’t do that as much in the past.

If you will take a look at the taxes paid by most people plus living costs their is a deficit left for saving. A recent report stated average American pays more in Taxes than food and medical cost combined. As I spent a lot of time in DC on behalf of my employer and industry, I saw first hand the employee bloat in DC alone. Example: drop in on most open style government offices around 10 A M and half or more of desk are empty. At least half remaining are openly read a newspaper and rest working on computer, today, I sure they would be playing computer games. Today it takes two salaries to fund the family! Why? Once our corporate economist and I determined that the spouse total net salary after expenses of clothing, child care, faster food cost, other expenses to allow her to work plus Social security taxes on her wages netted the family about equal to amount the head of household paid in taxes!!!!! We know the costs of this disparity : divorce rate higher , children raised without parental control, crime soaring, family breakdowns, drugs, single parents raising children, birthrate dropping, children at home without parents for much of times all of this for what? A government that consumes the massive portion of the GDP, with government employees having some of highest average salaries in country, unemployment in private sector but booming employment in public sector, decades of stagnant wages in private sector BUT rising wages in Public sector all point to one simple fact: We have too much Federal government!
Solution: cut at least 50% of current Federal government employees headcount, advise those left work or you are out as well. Get a President with courage to reverse Kennedy’s Executive Order allowing Unions for Federal employees who already have Civil Service protection. Will it happen, probably not but it will happen when the investing world STOPS BUYING OUR BONDS and Federal government is recognized as what it has been for decades Bankrupt!!!

I liked Richard Thaler’s take on this in Nudge. Automatically enroll individuals into retirement plans and then automatically increase savings over time. Individuals are allowed to opt out, but the default is to save. They call it libertarian paternalism. People are free to do what they want, but there’s some value signaling going on in the default settings.

I think there are three contributing factors that help explain the gap between the past and today. I’m not using them as ‘excuses’ or justifying the idea of not saving, but just pointing them out. They are retirement savings, health care, and costs for higher education. Compare each of those 50 years ago versus today. In the past, many people had pensions. Now, very few do and retirement contributions are the onus of the employee. Long ago, health insurance was not a deduction from your pay, and your insurance covered pretty much everything. In our family, for example, the first $2,700 out of pocket is now our responsibility, plus almost $2,500 of my pay is deducted for the pleasure of participating in this plan. And I don’t even have to go into the details of the cost of college education then vs. now.

Point is, all three of these things are (wisely) explained as necessities for all middle class families, yet all three work against the other (wisely) recommendation of making sure to stick money aside in the bank.

I would disagree that it’s just the increasing costs born by consumers, but the fact that consumers have been shielded from the costs for so long that we don’t have a culture of financial responsibility.

I think your argument is beat turned on it’s head: if college we’re easily paid for by students, retirement was just taken care of with the promise of a monthly payment check, and healthcare was just something supplied to you by an employer or the government, why would you bother saving?

I think the changing nature of these programs leave people at financial risk, but I think it is the application of these programs, not their removal, that has contributed to the low saving rate.

Finally at the age of 37 I am credit card debt free, and have a good (not great) amount of retirement savings, but I still have a mountain of student loan debt. I had no money left over for life expenses that I would have been able to save for such as a wedding, medical expenses, and unemployment. All that combined would have been no problem if I had an emergency fund, did not use credit cards, and did not have a $600/month student loan bill.

My parents have very little saved for retirement. Thus, I have since the age of 23 saved a portion of my pay for retirement so I do not end up in their same situation. Problem is, saving for the long term (which I am happy I have done, by the way), has gotten in the way of having short and long term savings. I worked during college, but still ended up with $86,000 in student loan debt for undergraduate and graduate school combined. The monthly payment ($600/month up until a year and a half ago when I got on a different payment plan) has made a huge impact on me from having an emergency fund or any type of short term savings.

I ended up putting basic everyday expenses such as food and gas on credit cards, which added up with interest when unexpected or “shit happens” expenses came up and I had to pay cash for them (why it is sooo important to have an emergency fund). Combine that with being unemployed several times and a wedding which my husband and I weren’t able to save up for (because, Student Loans, but we had family and societal expectations to have a “proper” wedding), I ended up with a perfect storm of situations that ended up with me being in a ridiculous amount of credit card debt (over $20K) because it was the only solution I could think of to pay for these things. I will take ownership of the credit card debt, as it is completely my fault, and we should have just gone to city hall and cut up our credit cards long ago. But, hind sight is 20/20 as they say.

Once I cut up the credit cards in 2016, being frugal with groceries and eating out, and paying cash (well debit card, let’s get real), for everything, I was able to gain traction on my credit card debt and pay that off. Now I am working on putting a dent on my student loans so I can pay them off in the next 4-5 years (fingers crossed).

The cost of healthcare is a big factor as well. I had 3 surgeries since 2010, which cost a lot out of pocket (over $2,500 with good insurance). Plus all the doctor visits, pre-and post op, and CT Scans and MRIs. Add that to the $2,500 or so I also pay for health insurance from my paycheck, and over $2,200 deductible, yes, healthcare gets in the way of saving. Not to mention lost wages from time off work, being on short term disability.

I would also like to mention that my grandparents’ mortgage was roughly 3x my grandfather’s annual takehome salary. A mortgage nowadays is more like 5x (or more, if you live in an urban or expensive area) of an annual takehome salary. Talk about inflation!!! Even the cost of rent is ridiculously more expensive with inflation factored in compared to how it used to be not even 30 years ago. Since my job and my husband’s job require us to live close to a city, we rent because we cannot afford to buy a house (let alone save for a down payment on one).

So, in summary, the costs of retirement, healthcare, and most importantly higher education has made a huge impact on me from saving for both short term and long term goals, as well as not having an emergency fund.

Nicole, WOW, what a story—-Keep Going on the track you and your husband have set out for yourself—being frugal and paying off loans. It is not an easy path, but you have already come impressively far. When I was young, I had some tough times too and it was really hard. It WILL get easier and more joyful once you retire that debt and see your wealth start to snowball, because you have created great life habits of saving and living below your means. When you have achieved your goals, you will be able to say–WE DID IT, we earned our security. Good luck to you on your path…

I have also wondered about the moral hazard factor. Many people expect social security to pay for their retirement, the government is taking over 12% of paychecks after all, and so they don’t save for the biggest expense there is.

Food stamps and other aid programs aren’t fun, but we hear them described as a “safety net”. And the thing about a safety net is people take more risks when one is there even though they never actually plan to fall.

Though I can agree that people take more risks when there is a safety net, I’m going to argue that enough people through no fault of their own end up needing those safety nets. They are a moral good, and a practical good as the homeless and indigent are actually our most expensive people to care for.

Nobody asks for a devistating accident that permanently changes the course of your life for the worse.
Nobody asks for incapacitating mental illness.
Nobody asks for several back to back catastrophies that deplete your life savings despite having been responsible all your life.
Nobody asks to be born with a severe disability.
Nobody asks to be born to horrible parents whose conduct effectively denies you the opportunities for education and betterment.
Nobody asks to outlive their friends and family who would otherwise help care for them.
Nobody asks for catastrophic chronic illness.

In providing that bare bones safety net, we solve a whole other lot of ills which are much worse than the (debateable) one we create.

No, I don’t think social security can be the reason for Americans having poor savings rates.
America has one of the worst safety nets of developed countries and a low savings rate.
If the presence of a safety net led one to think they didn’t need to save then why do countries such as Norway and Sweden have such high rates?

This makes me want to take someone from these countries, plop them somewhere else and see if their savings rate changes! Is it genetic in homogeneous countries (are they born savers in Nordic countries) or is it their environment?

I would be a horrible ruler…my experiments, for the sake of data, would ruin people!! ;)

I think discussing the rate of inflation and how that affects savings is key in this discussion. Why would someone save money when the interest rate you can get from a savings account is lower than the rate of inflation. Let say you put your money in a savings account that earns 1.5% per year (which is very generous nowadays), if the inflation rate is 3% then each year you are losing 1.5% of the value of your savings. I would say the governments/federal reserves role in the low savings rate is one of the biggest influences of the low savings rate in the US.

The doesn’t really make any sense and seems to simply be an excuse for not saving. So what happens if you spend it? What happens if you buy a car or new smartphone instead of saving the money? How much value do those things lose per year vs. what you keep in a savings account?

How does this compare to other western nations? I know it’s harder to compare when other countries don’t have exorbitant healthcare costs and can rely more on their countries for assistance in retirement, but I’d be interested in a study that looks not just at US savings rates but savings rates across peer countries too. I wonder if something like this exists?

Ris, this information does exist, but in a cursory search yesterday, I wasn’t able to find any one central source that listed every country. Maybe I should compile one? Here, for instance, is one list of saving rates in 25 different nations.

Here’s a good source, but with only 35:https://data.oecd.org/natincome/saving-rate.htm
If you dig around the OECD web site, you can find data for all countries, I think, but it’s probably a very complicated issue for developing countries and very hard to compare across countries in different situations. How would you come up with a saving rate for Venezuela, for example? You would probably find papers on the question in this library, as well, depending on how deep your interest is.
I would hesitate before psychologizing the question of why people save, beyond a certain level. The psychological techniques often referred to in the literature are, I believe, very helpful on a personal level, in terms of improving an individual’s situation, but only part of the structural factors that lead to our current situation.

> My mission in life is to help as many people as possible learn to manage their money so they can earn a “personal profit”. I want them to use this profit to fund whatever their personal mission happens to be.

So, encourage people to save. Great.

So that they can fund their “personal mission”. Hmm.

Let’s make this super abstract. We’re assuming my personal mission costs money (or has some opportunity cost that can be measured in dollars), or we wouldn’t have to save for it.

Let’s say that this personal mission is an ongoing thing (“help as many people as possible”) rather than some discrete event (i.e. “buy a house”). Do you save for this? Or do you just spend on it as you go?

I mean, what if my personal mission was to, oh, let’s pick something far-fetched at random, fly my family to Europe and travel around until our legal time we could stay ran out, and say that cost some amount per month. If I’m working as I do this, do I need to save *anything*? As long as I’m not getting into more debt, I’m “saving” adequately to cover this mission, right?

Tyler, if you dig deeper into what I’ve written about purpose and mission statements, you’ll see I address some of your questions and concerns. A mission can be a discrete event, such as buying a house or putting a kid through college. Not all missions have to cost a lot of money, but it does cost money to fund your lifestyle while you’re pursuing your goals.

Also, I’ve been meaning to ask you if you’re willing to write a guest post about how you’re doing what you’re doing. It’s one thing for me to enjoy following your adventures on Facebook. (Any chance I’ll run into you in Germany in December?) But it’s another to share with others how you’re actually making this happen.

Yeah, I didn’t mean to imply a “mission” couldn’t be a discrete event like buying a house, so much as I think it often isn’t and is more about attaining some certain lifestyle, which is an ongoing thing. If the goal is to attain a certain lifestyle, and that’s happening with any non-negative cash flow, then that sounds like “adequate savings”, even if you’re not saving anything, right?

And yeah, some missions will not be expensive, and thus should be easily achievable, at least from a financial perspective.

But yeah, if I click through to your “How to write a personal mission statement” article and answer the questions:

> How would I like to spend the next five years?

Pretty much like this year.

> How would I live if I knew I’d be dead in six months?

Pretty much like now.

So I guess that’s my conundrum, if you can even call it that – I’m already living how I want, so what next? Not that I can’t think of any more interesting things to do, but there’s not a lot of financial barriers unless I choose ridiculously expensive things (I could learn to fly helicopters or something).

But as for a guest post? I might be interested. Email me?

But my max of 90 days contiguous in the EU ends in about 3 weeks, so I’ll be flying back across the Atlantic (to the Dominican Republic), so I’ll miss you when you’re here!

Let me try to make this simple for folks. As my Old papa told me years ag0,
who worked at a aircraft company for 35+ years, and never made big money,
but he told me, it is not what you make, but what you keep, and being retired
today, I made good money for years, but now a lot less, but still able to save,
and put money away. How difficult is that to understand. As far as people using
credit card, if they would just change their name to “Charge Cards” and not
“Credit Cards”, where people could use them for airline points, and cash back,
but pay them off every month, “Wow” what a concept. Just Saying.

Why. That’s a tough one to answer. I recently met a 20something who proudly spent $1600 on a watch (“it was 60% off!) while saving nothing for retirement. It killed me.

I think here in America it boils down to hedonic adaptation. We live lives of ridiculous decadence. Most people I see begging for money on street corners have cell phones (pocket multimedia systems with the world’s biggest library built in) and fast food containers nearby. Most people I know on food stamps have multiple LCD TVs. These are things that 50+ years ago would be ridiculous sounding – now it’s not only accepted but expected. If they can have these things, then I think it’s very possible for everyone to be saving much more money!

I always have a hard time buying into any wage stagflation argument. Usually they’re politically charged. If you compare “regular people” to the top 1%, it might feel like we’re falling behind. But that’s worthless info – it ultimately doesn’t matter how much the other guy has, it’s how much YOU have. And we, again, are living ridiculously decadent lives. Cut out a little decadence, and anyone can save. Replace a Coke with some tap water. Make a home cooked meal vs chinese takeout and Survivior.

I owned a deli/convenience store for six years and I still cringe thinking about the things people were buying on a daily basis, knowing they likely were saving little to none for retirement.

I am sorry that Ron perpetuates the myth about the homeless. It is a cause very close to my heart. Yes, they have cell phones, which are given to them by the state in many places if they do not have one. I don’t know if he has applied for a min wage job in awhile, but it is all on line with cell phone number required. Yes they buy cr#p at his lousy store because supermarkets in “those” areas of town are scarce. I, personally, do not know one person legitimately on SNAP with a 55” tv. But he may be in the current know in his city. I do know that the poor I work with spend every penny the minute they get it because they have the belief that they will never have another. Most of them have to pay from $10-20 to cash their paycheck because they are not allowed a bank account. While the upper middle cries about their college being expensive, the poor’s existance become more bleak.

JanBo, it’s too bad you resorted to attacking my “lousy store” while making lots of assumptions. I stated no myths, just facts.

I think the problem here is when a cause is “very close to your heart”, you’re likely thinking emotionally. You’ve assumed where they got their phones from. You’ve assumed there’s no supermarkets nearby. You’ve assumed my store was lousy. So take a step back, breathe, and recognize that the point to my post is to illustrate how absolutely GREAT we all have it in many ways.

Are there problems? Sure. “The poor’s existence becoming MORE bleak?” No, not even close. As ridiculous as it sounds, there’s never been a better time to be poor in America.

No Ron. I work with the poor on a daily basis. I taught in a very poor school. I am glad YOU feel it is a great time to be poor. The rest of your statement speaks volumes on how removed you are from those who are truly in the lowest class in our society.

There are lots of key contributing factors but I would say wage stagnation vs CPI, Housing Costs, Hedonistic lifestyle (or HGTV effect), Costs of Insurance/Healthcare, Lack of Financial Education, Keeping up with the Jones’s, and Education costs. Everyone one of these items can be an individual contributor or it is the combination of each of these.

* Wage Stagnation – There are many stats that say wages have risen versus CPI but that is the problem with taking wages over the entire US population. Look at specific sectors and you see where many people work there is definitely wage stagnation (especially in low/minimum wage jobs). Take CEO, Medical field pay out and you will see a definitive lack of growth.
* Housing Costs – While some places housing costs are realistic, some locations (looking at the coasts) are absolutely out of control. When I purchase a house (I have had 7), I look at the land value, and add what it would costs to build the house from scratch, and that’s what it is worth. Not some intrinsic value, etc. It has served me well over time.
* Hedonistic Lifestyle – This is distinct from the Keeping up with the Jones’s as it is all about stuff, design, etc. for your house. Do you need a 55″ flat screen TV in your bedroom? Do you need granite counter tops? Do you need a koi pond in your back yard? These are things that people want for no other reason than to make their life “better”. I am guilty as my pleasure is musical instruments (guitars) and computers (I have way too many). However I am not going into debt for them so that is all on me.
* Cost of Insurance – The cost of insurance (and what it covers) has changed over the years. It used to be you had good insurance from companies and medical expenses were kept to a minimum. Now companies are robbing Paul to pay Peter by giving higher salaries but cutting back on your benefits spending. I have worked with many companies HR departments and know this trend has been going on for 2 decades. They give you a 3% raise, but make you pay 10% more of the cost for insurance (which is always rising, while covering less).
* Lack of Financial Education – I grew up in a family where my parents taught me about finances at an early age. I know many people didn’t have that advantage (JD for example). This to me is a huge factor in some people not being able to save.
* Keeping up with the Jones’s – This is all about appearances. What car do you drive? Do your kids do 3 activities per season? How big is your house? What clothing brands do you wear? All of this is about making yourself feel better/important to other people.
* Education Costs – This is not just college, but public/private primary schools. Books, supplies, everything you need to go through primary school. Then you look at colleges/universities and people going for name/program recognition instead of value/cost. Someone has to pay for the school, either the parents or the students.

I have been lucky and blessed in my life knowing what I know and being able to save. I want to “retire” to a secondary career (ie. not wake up at 8 am every day for work) by the time I’m 45. I am soon to be 44 and I am close. I had a conversation the other day with a friend who said they could not live for less than $95k a year. I told them I live for less than $35k. They were shocked, and I laid it out. I spend less than $35k for everything I do, insurance, housing, car, vacations, food, etc. I don’t feel like a hermit since I work hard, I eat out a lot, enjoy my time, and just spend $1k on a new computer build. All of this is because I know to spend less than I make, and watch each of the categories listed above.

My parents never saved up for anything. They depended on my grandfather to bail them out. They lived where they felt entitled to live (instead of where they could afford to live) and always did what everyone else did.

When my husband and I first married, we put at least a little amount of money into savings every month. Sometimes we had to take it back out again to cover day to day expenses (even with both of us working full time we still qualified for food stamps) but it was the principle of the thing.

Later after we moved to California and 60% of our income went straight to the landlord, we still managed to save at least a little every month and we invested in 401ks and IRAs. We had two children by then and we had to pinch every penny twice, but we managed.

Meanwhile my siblings had the same lah-di-dah attitude our parents did. And they solved money shortages by getting money from our father, continuing the pattern. My husband and I never took one cent from anyone and solved our own money problems ourselves.

Result? We are retired now and have enough money to last the rest of our lives. My siblings are living hand to mouth and paycheck to paycheck. They got on my case for “never spending money” years ago… not any more!

I grew up with really financially irresponsible role models and I didn’t know where to start when I got my first good paying job. I found GRS from a google search and it helped me so much. This was abut 10 years ago now and I’m in a great place and still a reader. Please count me as one American you helped along the way to your mission Thank you.

I’d also like to point out that one thing that makes it harder to develop the savings mentality is that it’s hard to open a bank account. The ranks of the unbanked have been growing, and for a reason.

Not only does current federal law with ID verification create a barrier, but the banks and CUs themselves create further barriers with their nickle and dime fees, direct deposit and/or minimum balance requirements, all things that place savings out of reach for those on the lower rungs of the ladder, and can even have those in the middle class pulling our hair out.

I changed my brick and mortar bank earlier this year. SUCH a hassle.

I started internet banking before 9/11/2001, but watching the hoops my brother jumped through to start an online account earlier this year is the reason I’m not moving my money to a bank with a higher APY.

——
As for why college is more expensive, I work in a State U, the one I graduated from. The amount and kind of services we are expected and/or legally required to provide has grown from when I was an undergrad.

Given the tightness of budgets, more departments are turning to grants to get money, and also the U itself now asks departments to justify their expenditures, so does the legislature. Having answers to their questions on tap requires an enormous amount of data crunching and those statistics do not compile themselves, and you don’t ask a professor do to it — it’s not a cost effective use of their time.

Just an example from my division — when I first started in my job, we had nobody devoted to data herding, every unit just squeezed it in to some person’s job, and some of us were better at it than others. Now we have 3 full time positions devoted to data management, and several other jobs partly contribute to it. We can, almost on demand, tell you the cost to the penny per use of all of our databases (and they are not cheap!) and we can tell a grantor/audior/legislator that our student workers have a 25% higher rate of retention, progression, and completion (RPC) when compared to other campus student workers, and a 45% higher RPC compared to students of a similar economic background (who are not work-study), and beat the average campus undergrad RPC to boot, so that’s the added value my division brings to campus, and it’s why you want to continue funding us.

(I was very happy to have the stats compilation portion of my job removed and handed over to an expert who really enjoys data. It freed up several hours time each month to work on projects related to better serving our patrons.)

I don’t see how an ID would be a barrier to having a savings account. People need an ID to fly, to show verification on a credit card at the store, or to drive a car. If you maintain a minimum balance a put a few dollars in once in a while, then there are no nickel and dime fees. Plus, at the university, aren’t students supposed to present ID in order to get a student ID? ‘Hard to open an account’, there is almost nothing easier. Name one bank that does not want a persons’ money.

You should, simply, ask at your local Bank about balances, bounced check charges and availability to get an account without a functional driver’s license. It is surprising how much things have changed in the last ten years! B of A/ Wells Fargo/Chase is $1500 min. You can have direct deposit of over $500.—but you might ask Ron how many poor people are paid in a way that they do not have anything to direct deposit. Recently SS took a group of banks to court for not allowing SS recipients to use their bank. That is because SS went to only Direct deposit. You should have seen the line on the 30th for the people who were paid by personal check in Walmart. Yes, the maids, nannies and yardmen who work for the upper middle are out there paying $10 per check (Chase it is $35) to cash their checks. BTW- the landlords of the poor do not take checks, in general.
Thanks for letting this topic roll JD. It is difficult to save if you have to pay to use the money you have earned.

To not have any money saved to me is not a valid excuse. I worked at a farm for many years starting at $3.35 per hour and $5.00 per hour after high school. I still had money saved for an emergency even though some weeks all I had was $15 to use for food for the week. Yes, I understand that banks require a minimum balance but once the minimum is met, checks are cashed for FREE. Bounced check charges happen when people do not monitor their balances and not because they are poor or something. I have bounced a check once in my life because I was not monitoring my account like I should have. It had nothing to do with some upper middle class employer.

I work at a bank and like many in the area, there is no minimum balance if you sign up for direct deposit. Every employer in the area offers this. Most of the low wage workers choose to have their pay put on a reloadable debit card which charges exorbitant fees. Some will pay $30-40 a month in fees. I teach community financial literacy classes and have explained to these workers the cost savings of having a checking account, but few take me up on it. Most are in and out of jobs and don’t want fees when they are unemployed and not having a paycheck direct deposited into their account.

I live in the United Kingdom (UK) and we have free healthcare and governmental legislation which every company has to enroll every employee who earns a certain amount into a pension. The reason being once they are in a pension they won’t leave. However an employee can leave by opting out after the first pension contribution from their salary has been taken. However tehre is no education as to what pensions are. I didn’t start saving in a pension until 47. if I want to live on £30K per year I will have to contribute £1800 per month for the next 25 years. the maximum an individual can invest in a pension is £40K per year and the government will pay 25% I believe, however you cannot withdraw until you retire (67 and the age increases each year)

I think it’s the consumerism culture we have here. Everyone is living it up so you’re weird if you’re saving more. Most people like to conform to the norm. Being different is hard. That’s where GRS and other blogs help. We show people the alternative to the consumerism culture. There is a better alternative to spending mindlessly.
I like the mission statement. It’s good.

I think a contributing factor is that we are taxed on our savings. With interest rates on savings so low, there should be a limit on how much savings are taxed. Instead, if I earn $10 in interest, it’s taxed. I’m a saver, but I do it through my 401k instead since I get a company match and it’s a tax-free way to save.

Technically a 401k is not tax free. It’s tax-deferred. You will pay taxes when you withdraw the money. I am seeing more employers offering Roth 401k’s which are funded with your after-tax dollars, but the principal and interest are not taxed when withdrawn. There are restrictions however.

However, I think it’s an internal problem that’s twofold: we get a false sense of security and we feel entitled. Once we hit upon good times, we act like it’s the new norm and begin spending until it’s hard to stop. We don’t worry because we assume another paycheck is on the way. It also doesn’t help that we feel entitled. Granite counters, expensive car, bigger house, yet another TV? We don’t need it but we must have it because there’s no time like the present and we think we deserve it. Our grandparents wouldn’t have dreamed of living this way.

My remaining mortgage balance on a modest home is about what most people owe on a nice, new car. Those that kept telling me I should upgrade now tell me how lucky I am. It wasn’t luck, it was the idea that one small decision or action could lead to others and, as we all know, slow and steady can indeed win the race. If we lost the mentality that it’s everyone else’s fault we’re broke and accepted we don’t always get every little thing we want just because we want it, our savings would grow exponentially.

After thinking about it I think it comes down to culture andarket cycles. The depression was a defining experience for several generations, and those that lived through it had a different relationship with savings than those of us who came after.

Last week while talking about paying off mortgages someone said something about paying off a mortgage being a “depression mentality”. The message I got is that many consider having the security of a paid off house to be overly conservative. I believe that our whole culture has shifted and a lot of people simply live closer to the fire because they haven’t yet been burned.

All good reasons, but one I think is missing from your list is Cynicism (aka Lack of Hope). For example, I’ve known at least one person with the belief that “You’re always going to have a car payment” so they see no point in saving money for their next car -which quickly becomes a self-fulfilling prophecy. When someone is convinced that rich people mostly got ahead by cheating and the little guy never stands a chance, then it’s not really surprising to learn that they spend high now because they were never going to be rich anyways. Or there’s always the curmudgeon that believes the government is going to tax you to death whatever you do, so there’s less enthusiasm in investing money just to pay it all to Uncle Sam. And with a Great Recession so long that even the vaunted 3 month Emergency Fund wouldn’t cover the one+ year of unemployment some people experienced, there seems less point in saving when you know for a fact that it might not be good enough. Really what it comes down to is that setting aside some of your hard-earned money for later is a Trust Fall exercise – and you gotta have trust.

I’d bet that locking up retirement accounts would make people save less, not more. I’ve talked to many coworkers in my career who were a bit reluctant to contribute to our employer 401(k), even when it had a match. For instance, one wasn’t sure what to invest in; another just wasn’t sure how to do the paperwork. Adding the additional friction of not being able to get the money back out if you need it would just have been one more thing. It’s known that the loss (and not being able to get your money when you want it feels like “loss”) hurts a lot more than gain. It’s also well known that we use hyperbolic discounting: we would much rather have a dollar today than even $2 tomorrow, according to some studies. I suppose there might be some exceptions to the rule, but assuming they are enforced, you have to prove your hardship to some third party administrator, which hits another American value: independence. Nobody here likes to be told what to do!

I have worked with many people who see their 401k as a savings account and not a retirement account. The reasons for them tapping their account vary from money for X-mas to remodeling a kitchen. That is not the purpose of a 401k. When I got into industry where they had a 401k plan with match, I initially did not use it because I could not justify earning 10 to 15% when I was paying 24% on credit cards. After the cards were paid off, the company had various sources for showing me their offerings and how to choose and set up my decisions. I have never heard of a company that offers a 401k and not have people available or help you contact people on the correct paperwork required for setting up a plan. The one thing I like about my 401k is the tax deferred savings.

As my Father always said to me “Pay yourself first. If you pay everyone else and then you, you will not have any money left.” I put myself first and cut out anything that is not needed out of my budget. It also takes maturity to say “no”. I’ve lived on a very low tight budget but still saved for me first. It can be done.

Agreed Debbie. No matter who you are, if you look to your left there’s someone making more money than you and if you look to your right there’s someone making less. They’re both making it work. It’s attitude to start. I’ve never seen someone with an ongoing money problem fix it with more money.

There was a book I read once that talked about the rules of gold. One of those rules was pay yourself first. Over the years I realized how important that is especially when starting out and SEEMINGLY living paycheck to paycheck. There are always places to cut like going from the $100+ monthly phone bill to a $15 a month Tracfone. I did it and it worked for me but everyone’s situation is different so that one thing might not apply. Just food for thought.

I suppose I approach it from a very different standpoint. I grew up in a house I wanted out of for a very long time. I promised myself once I got out that I would never willingly place myself in a situation where financially I could not get myself out of. Hence, I have always saved an amount of income that I have received. Even when I was in single digits getting $5 allowance part of it went to savings. For me it all about the best shot of having control of my life.

Secondly, I think it also helped that both my parents were young children in the Depression. It was instilled in me to save for what I wanted. Budget out was money was coming in and each paycheck put a tiny bit away for all known expenses and emergency fund. My budget is always looking towards the future.

Thirdly, I have to say I do get a perverse thrill with my stealth wealth status when my friends, etc complain about lack of money when they foolish spend it ridiculous items.

The bottom line for me it rate of the return value. If it is pure math then I calculate how many NET income hours it would take to pay for something. I just do not get the rate of return my friends due from dropping over $100 for a small dinner, a glass of wine and listening to a band at the hip restaurant. But the two hours hiking with friends followed by the $18 lunch, totally worth the rate of return.

I had a friend who looked at the cost of things compared to an ounce of silver. That person told me if he saw something he WANTED he would figure out how many ounces that cost would buy. They accumulated a good amount of silver over time using that method. Me, for something I want, I sleep on it. Usually I realize that I really didn’t NEED that much after all.

JD-
I just recently found your site about 6 months ago and as someone who has struggled with CC debt over the years, I have found this site extremely helpful and a daily reminder to improve my/our spending habits. The content you provide is great and I genuinely look forward to reading each and every article you publish. Thanks for the great work!!!

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My name is J.D. Roth. I started Get Rich Slowly in 2006 to document my personal journey as I dug out of debt. Then I shared while I learned to save and invest. Twelve years later, I've managed to reach early retirement! I'm here to help you master your money — and your life. No scams. No gimmicks. Just smart money advice to help you get rich slowly. Read more.

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